AIM Interview: Sapphire Energy’s CJ Warner

n the day the U.S. government shut down, Sapphire Energy’s Vice President of Corporate Affairs, Tim Zenk, was contemplating what to do, since several of the people on his upcoming ABS panel were being called back to Washington for the furlough. Dealing with the government is a mixed blessing for a company still in its early development stages. While the government provided early support to give Sapphire a running start, the company also strenuously advocates the government for equal status with other specialty crops – a move that would give algae growers access to extension services, loan guarantees, crop insurance, ag research and marketing resources.

“It’s time for Congress to get on board – create a special subtitle in the Farm Bill that includes algae with the specialty crops,” says Zenk. “Specialty crops are anything other than corn, rice and soybeans; so put algae in that category, and give us status that levels the playing field. Now is the opportunity, since the farm bill has expired.”

As Zenk coordinates the effort at the governmental level, Sapphire Chairman and CEO CJ Warner continues to guide the algae juggernaut through its development to full commercial production. We were happy to again sit down with Ms. Warner to get an update on one of the most exciting and critical experiments in the algae industry.

So what has been happening at Green Gulch Farm over the past year?

The really big thing over this past year is that we’ve progressed our technology through an integrated development process that starts at the algae farm, where we’re growing at large scale. We’ve been growing a continuous culture of about 30 acres of algae, and through that process learning a tremendous amount, and then taking what we learned back to the labs at our development facility, embellishing on that, and bringing it back out to the plant. All of that process was going on in a really vibrant way this year and we learned about problems we wouldn’t even have known existed until we actually started doing the practice. That’s been a huge step forward for us.

You are cultivating 30 acres out of the 120 acres available in Columbus, New Mexico?

We are, and we’ll be utilizing all of that acreage as we develop our downstream processing facility to a larger scale. The two of them are in exact sync, and that’s done purposely. The downstream processing is capital intensive because we operate at elevated pressure and temperature. So the first system we built fairly small and modest so that we could learn everything we needed to from that, and now – through our partnership with Linde – we’re going to be scaling that out to the larger 50 barrel a day scale, which represents 200 acres.

Where will the additional acreage come from?

We’ll be building another very large pond system in Columbus. That way we can produce all the biomass necessary to keep the system full. And that enables us to test our next generation ponds, which are very low cost, as well as this additional scale-up system of the oil conversion facility.

What sort of productivity are you currently measuring?

Actually we don’t publicize our biomass productivity – that’s pretty closely held. I will say, though, that we have exceeded our targets to the point where we are currently producing what we know from an economic standpoint is necessary to be able to be competitive commercially with crude oil.

From the standpoint of utilization, we’re doing very well, achieving our 80% point – or­ running at full capacity 80% of the time. That’s an oil industry term that’s utilized whenever you have a capital-intensive system. Utilization becomes a very important metric of performance.

Last time we spoke you were planted in spirulina and were getting some very high numbers for lipid content.

What our extraction process does is what’s going to enable our ultimate scalability, because it doesn’t extract just lipids from the biomass; it converts all of the biomass to oil. We don’t have bi-products of proteins and carbohydrates – the proteins and carbohydrates also get converted to oil – which is exactly where petroleum crude came from when Mother Nature converted all of the biomass to oil as well.

How is it converted?

We use a combination of hydrothermal conversion and then solvent extraction. What that does is to create a clean oil that can be refined, and then separates the nutrients so the phosphorus, for example, is 100% disengaged and goes directly back into the ponds to be reutilized by the algae.

What is the next big milestone?

Getting that next stage of scale-up up and running. We’re going to be building it this next year and then we’ll be fully operating it by 2015. The first commercial selection will also be very important because then we’ll start bioverification on the site, so that we can select our strain and optimize it for that location, and also generate all the partnerships that will be important both for oil offtake, transportation mechanisms, CO2 feedstock, etc.

Sapphire’s 1.1 and 2.2 acre ponds cultivate algae cultures in the high desert in southern New Mexico.

Have you chosen a location for that?

We have a short list but we haven’t finalized a selection yet.

Can you give us a profile of what that piece of real estate is going to have?

Lots of flat land. Lots of brackish water available. CO2 readily available – being somewhat near an emitter is very valuable. The warmer the site the better – you’ll get an annualized average growth rate that will be higher. Those are the most important factors.

So what size piece of land will this be?

Our first commercial system is going to be 10,000 barrels a day, which is about 40,000 acres.

How many potential locations have you identified where all these factors are in place?

PNML (Pacific Northwest National Laboratory) has helped us find multiple locations. In fact they have identified enough locations to grow algae that would be able to grow twice the RFS requirement for advance biofuels. There are a lot of available sites.

And the cost of land is within your criteria?

Exactly. I would say by mid next year we will be able to announce this location. We want to get all of the commercial deals done before it becomes publically known.

On this large farm will you continue to rotate your crop – have summer and winter strains as you’ve had in Columbus?

We are getting to the point where we’ve found a robust strain that we don’t have to change out. We don’t use spirulina anymore. We’re using strains that we’ve identified in the field and improved in the lab and put back out into the field, and we’re able to grow those both summer and winter.

These are modified strains?

They’re modified within non-GM methodology. Think of it as GMO is a very specific way to improve a strain wherein you’re actually displacing DNA with DNA that come from somewhere else. There are a lot of ways to improve a strain that is not GMO, including things like basic Mendel genetics and breeding. So we do utilize breeding as one of our technologies. We also use mutagenesis, and that enables us to do multiple improvements that can be stacked on top of one another without using GM technologies.

We started with a desmid strain that we found in the location where we’re growing. It was wild type originally. And it evolved all by itself to very well adapt to the location in which we are growing. Then we were able to use our platform technologies to improve it, so that it grows in the way that we need it to.

Will you take that strain to the new commercial location?

No, because what our platform technologies enable us to do is always start with a strain that’s local. That gives you a pretty big head start, but it also gives assurance to the location that they are starting with a local strain – and then we improve it in the lab and bring it back.

How do you deal with contaminants and environmental assaults?

Each location has its own unique issues for an algae strain to be able to cope, which is why you start with a local strain. The water chemistry is going to be quite different from one place to the other. The soil chemistry is definitely different. The local predators are completely different. The weather patterns are very different. All of those come together to make a mix where you are really trying to optimize within it, so if you can start with a strain that’s already happy there, you’ve got a good head start.

And what about the water?

We work with brackish water, we never work with fresh water. That’s one of our sustainability principles. We’re also studying the use of salt water, and that will be our next generation system. That’s what I mean about the water chemistry being an important factor when you first select a site.

What’s the thorniest issue you are dealing with these days?

Well, it depends on the day. I would have said grasshoppers three weeks ago! But generally I would say simply managing the dimensionality of an integrated development process. It’s probably the biggest challenge, making sure that we continue to do that very well. The real thorny issue for any company like ours is maintaining investor confidence. We need funds to finish what we’re doing. I mean, we’ve got the technology, and it’s going to happen, but it costs money to finish what we’re doing, so we need our investors to be happy and confident and ready to go. And the way we do that is by hitting all those targets.

You’ve recently paid back a government loan of $50+ million dollars. Were you reluctant to do that considering that you need funds for growth? Could you have rolled it over?

You know, it just made so much sense because we were paying a significant amount of finance charges, and we could have used that money for improving the technology. So as long as we had investment funds to displace the loan, it made a lot of sense for us.

Recently the NAABB study suggested that with proper optimizing and a facility upwards of 1200 acres, fuel could be produced from algae for about $2.86 per gallon. How would you gauge Sapphire currently against that benchmark?

We are on track, depending on our location, for producing oil definitely at a competitive price to petroleum crude. We think about it in barrels and, depending on our location and some of the options we have for feedstock as well as land, we’re anywhere between $45 and $80 a barrel. And the quality makes a big difference in price. The oil quality that we produce to is on par with Brent Crude and WTI, and they haven’t traded below $100 in a long time.

CJ at Sapphire Energy headquarters in San Diego

I started my ABS talk about our vision, which is real for us. We really cherish that and it motivates us all the time. This technology has the potential to bring have-not countries the ability to stand on their own two feet in an economically competitive way.

We will build our first commercial operation in America, because this is American technology that’s been developed here. And America also continues to import over 50% of its crude oil, so we have plenty of room to develop our own above ground oil reserves. But when you’re thinking about investor interest and demand, there’s a lot of international interest as well.

Since you come from a career in the oil industry, how do you sense that the oil companies are seeing the algae industry at this point?

I always tend to view them as potential partners. The oil industry is an amazing collection of incredibly talented individuals who are constantly also having to bring sophisticated technology to bear. It’s not like a mature industry where whatever they invented has been the same now for thirty years and they’re in cash cow mode.

The oil industry has new challenges every day, with new production technologies, new exploration technologies, new formulations for their fuels, etc. So they are constantly working on all those things to deliver a product in a reliable way at a very very low cost. That is a challenging enough job for them that to also look for a brand new renewable source of energy is a pretty big step for them at the early stages we are in.

I would say that 90% of the oil industry is very interested in what we are doing, but they know that a small company like ours is going to be better served by innovating at this stage, and then when the time is right to partner, then we’ll partner.

Any message to the industry?

The algae industry has so much promise and so much capability to make a vast difference, through all the permutations of an amazing platform. There are so many new things that show up all the time that we can do.

What we’re doing in our facilities is creating the platform for growing vast amounts of this material. And all the creative technologists around the world are thinking of amazing new things to do with the material. Oil is our touch point, which enables us to stretch and get the cost down, but now we have a platform that makes vast amounts of biomass that we can use for anything.